Tan Kin Lian's Blog: Issues not addressed by MAS investigation findings

Friday, July 10, 2009

Issues not addressed by MAS investigation findings

Dear Mr. Tan,

I am disappointed that the MAS investigation findings did not address the following issues:

1) Are minibond products suitable for the retail investors?
2) Are ordinary investors with education level above primary 6 able to comprehend the complexity of the prospectus?
3) Are minibond products defective?
4) Whether minibond products are fair with respect to the return and risk?
5) Whether the newspaper advertisements misled the investors into believing that minibond is a bond from the six leading banks?
6) Whether the sales brochures misled the investors into believing that it is a bond from the six leading banks?
7) Whether the prospectus confusing and/or misleading?
8) Whether the sales brochures and prospectus omitting any important information?
9) Whether conflicts of interest arise: can Lehman alone being the arranger, issuer and swap counterparty?

Thank You,
P

16 comments:

Anonymous said...: P, we all know the answers. It depends whether you choose to know or not.; July 10, 2009 2:53 PM
Anonymous said...: If these products were sold in the supermarket, with simple prospectus and other info. there won't be any problem. It is Caveat Emptor. You buy or you don't buy. You decide. If not sure you can go home and research .
For the old folks, Ak Peks or Ah Sohs I am sure they won't buy because they don't know what animal it is.
For the educated aunties and uncles they can't understand they won't buy. Too chim to make dollar and sense of it.
For the educated with PhD or MBA they will read, study ,feel it and touch they still won't buy becuase not sure what it is, the jargon not so easy to grasp.. Go home do more research perhaps ask another PhD with CFA. After knowing what this product is made of amusing and exotic stuffs, maybe at best just try with a small amount, lose never mind.
You see, if anyone from the above bought it and lost, no one is to be blamed, you buy at your own risk...with 2 eyes open big big.
But if you put a human being there ,a sales promoter it is a different game altogether .Black will become white and become green and red.The AH Peks and the Ah Sohs will become experts suddenly transformed and can make informed decision. The aunties and uncle think they struck TOTO 1st prize.
The educated PhD or MBA too shy to admit they are still blur like sotong but because of the sweet thing pitching the product, don't buy also lose face. Boh pian try to rationalise to justify the purchase.
Wahlow, today business so good the sales promoter enthused that she was so good that she was able to con, no, convince so many customers from different walks of life. One day managed to close 20 cases.

MAS raided the place. Found a copy of section 27 of the FAA torn and thrown into the garbage bin.
Product promoting and pushing is faster and more lucrative, explained the promoter. It took her one day to close 20 cases. If section 27 was applied it might take her 2 days to close a case.
So you see why product peddling is preferred.
But resulted in many casualties. The court will be very busy.The MSM sale spikes. RMs are having nightmares; bank shareholders up in arms.Heads will roll.

The Watchman; July 10, 2009 8:26 PM
Anonymous said...: if this were the US, the goverment would immediaely launch a lawsuit against the FIs. why can't our government be more forceful?; July 10, 2009 10:01 PM
Anonymous said...: FA is to give advice.
You send a FA to sell the product, people would naturally think that the FA is giving advice.
Then u turn around and say the FA is not giving advice bec u hv sign "disclaimers".

Is it misleading (mis-rep)???
Is it unfair???
Hope the experts can explain or give yr views. Thanks.; July 11, 2009 6:50 AM
Anonymous said...: To be fair to MAS, perhaps all interested persons should read the report in detail as opposed to relying on soundbites from the Internet. A copy made be found here at the Lion Investor site:

http://www.lioninvestor.com/code/uploads/structured-products-investigation-report.pdf

While there have been many complaints that MAS did not do enough to punish the FIs, the report is fairly factual and provides quite a lot of details which are useful to investors intending lawsuits. For example under the DBS High Notes section, the following was written:

"DBS required RMs to attend internal training and pass a test which was specific to HN5 before they could advise on and sell HN5. However, 28 RMs did not attend training and did not take the test while another 21 RMs attended training but did not take the test. The 49 RMs were nonetheless permitted to sell and had sold HN5 to 303 clients. Of the 28 RMs who did not attend product training, 19 had not attended training for earlier High Notes series that had a similar structure to HN5. These 19 RMs had sold HN5 to 108 of the 303 clients. DBS reviewed the sales made to these clients in accordance with its complaints resolution framework."

This very clearly shows that some RMs were not qualified to sell the High Notes. Previously, it was mentioned that there were 1,083 clients that bought HN. This means that if you are a HN holder, there is a 30% chance that the person who sold you the HN was not properly qualified.

While it is a stretch to use this in a class action suit against DBS for negligence, this is very helpful if you are intending a personal suit. Obviously if you had bought a HN under a RM who did not undergo the proper training, you would have a fairly strong case.This suit does not have to be against DBS; you can just sue the RM. Such a case would not be all that different from a malpractice suit brought against a doctor who performed a procedure for which he was not qualified. If you scope it down to something reasonable, then the legal costs would not be prohibitively high. In fact, you would most likely get a settlement without going to court.

If you read inbetween the lines, MAS is not taking a stronger line because it does not want to give a windfall to free riders with no legitimate claim at the expense of the FIs. At the same time, MAS is releasing a large amount of factual information so that investors with legitimate grievances can take those who caused them harm to court.

This means that if you lost money but were planning on sitting back and collecting your money after someone else has done all the fighting, then there is a high chance you will get back nothing.

On the other hand if you proactively go forward and take reasonable steps to recover your money, then there is a lot of material to help you so that there is a good chance you will get something back.; July 11, 2009 7:37 AM
Anonymous said...: Why allow securities firms to use FAs to solicit business from prospects for "execute only" txns?

Is it misleading? Is it legal?
Is it ethical?; July 11, 2009 8:28 AM
Anonymous said...: If mis-selling HN5 is considered "without merit" then what is considered "with merit", DBS?; July 11, 2009 11:36 AM
Anonymous said...: MAS chief should apologise and resign, after WKS on MKS "prison break"!; July 11, 2009 11:38 AM
Anonymous said...: If the RMs were not qualified to sell the products it means they have flouted the fit and proper criteria of the FAA.
Secondly, if they didn't conduct the sales process to comply with section 27 of the FAA they too flouted the law resulting in mis-selling and misrepresentation.
In other words the RMs were unlawful when they sold to the investors.
As employees of the FIs the FIs too are liable for the misconduct and therefore are liable for compensation to the aggrieved investors.; July 11, 2009 1:28 PM
Anonymous said...: One observation I could make from the report is that why MAS never detect those issues/findings earlier in their normal inspection or spot checks of the FIs? If any or some of those findings were detected earlier before the financial crisis, may be the loop holes of this industry would have been covered any less victims will suffer!!; July 12, 2009 6:54 AM
Anonymous said...: Even if they were detected,it may not help investors.
As long as the FIs hv proper documentation and disclaimer clauses, and make sure investors sign on them, it is alright for investor to loss money, bec it is their own fault.; July 12, 2009 9:53 AM
Anonymous said...: To anon 6:54 AM

Isn't it obvious MAS was sleeping on the job ! Now that the report is out, it has proved they are only a Paper Tiger at best.; July 12, 2009 3:29 PM
Anonymous said...: Dear Mr. Tan

I do not recall reading about the Commercial Affairs Dept. investigating the Structured products.

Is there a case for the CAD to be involved when its mission is to:

"safeguard Singapore's integrity as a world-class financial and commercial centre through vigilant and professional enforcement of the laws"?

Any legal professionals out there who can advise if any laws were broken by the FIs who distribute or created the Structured products?; July 14, 2009 12:54 PM
Anonymous said...: Hong Kong regulator fairer to affected investors (ST LETTER): http://www.straitstimes.com/ST%2BForum/Story/STIStory_401136.html; July 14, 2009 4:24 PM
Anonymous said...: The MAS report has failed in many areas on its roles of investigation:
1)Why approval has been given to
FIs for selling the toxic
product to the public even
though US had banned the sale?
2)What measures have been taken to
safe guard the interest of the
public in the process of sale?
3)If FIs breached the FAA and
found guilty,why no stiff
penalty posed for them?
4)Obviously the lax of regulatory
authority in keeping the sale
in order is the crux of the
problem. Should MAS holds any
moral and obligatory duties?
5)In what way the report can help
retail investors who seek
compensation through FiDREC?
Does FiDREC fully understand the
whole background?; July 17, 2009 11:00 AM
Anonymous said...: Dear Mr. Tan

Business Times today reported that MAS MD Heng Swee Keat rejected suggestions that MAS should shoulder part of the blame for the scandal, in which some investors said they were misled by sales staff into buying the notes.

Heng was quoted:
'Operational lapses' uncovered by MAS's investigation of the sales and marketing practices at the 10 financial firms that sold the notes were the responsibility of the companies' boards and senior executives'.

'MAS's supervision cannot replace the primary role of the board and senior management to ensure that controls and processes are implemented robustly by all their staff.

'We will therefore scrutinise the steps being taken by board and senior management to ensure fair dealing by the financial institution with its customers.'

Questions:

1. Since MAS ha confirmed there are operational lapses and these have led to huge losses by misled investors, why are FINES not imposed on the guilty FIS? and why are FIs not mandated to compensate ALL investors fairly (at least 50% payout)?

2. Now that MAS has confirmed that laws (operational lapses) have been breached, will the Commercial Affairs Dept. and the Attorney General's Office launch an investigation?; July 17, 2009 11:10 AM